Texting Crackdown a 'Cash Cow' for the SEC: Commissioner Peirce

Peirce and Uyeda Dissent

Peirce and the other Republican SEC commissioner, Mark Uyeda, issued a dissent the same day stating that “the use of off-channel communications — text messages, smartphone chat applications like WhatsApp, and personal email outside firm-approved systems — is prevalent across the securities industry. We have an industry-wide problem that we will not solve through enforcement.”

Over the last several years, Peirce and Uyeda wrote, “off-channel communications cases have become more prevalent on the Commission’s enforcement docket. We have struggled with these cases. While we supported many of them initially, it was not without deep reservations.”

Recently, the two continued, “we have objected to the penalties and undertakings in most of these cases,” noting that the case Tuesday against Qatalyst Partners LP ”illustrates and confirms the reason for our reservations: It does not appear that firms have an achievable path to compliance.”

Under the standard applied in that case, “even well-intentioned firms could find themselves in the Commission’s enforcement queue time and again. Qatalyst has been working to address the off-channel issue for at least sixteen years,” Peirce and Uyeda wrote.

Said Peirce and Uyeda: “If we assess reasonableness based on whether policies and procedures always are being followed, firms will never escape our enforcement net. People are not perfect and so compliance will not be perfect — even at a firm that tries as hard as Qatalyst. Firing up our enforcement machinery every couple years to haul the industry in for headline-making penalties will not make people perfect, so firms will continue to discover violations of firm policies. We cannot enforce to perfection, but there is a way to achieve better compliance.”

SEC Enforcement Director Gurbir Grewal noted in announcing the fines Tuesday that despite recordkeeping failures “that involved communications by senior leadership and persisted after our first recordkeeping matters were announced in 2021, Qatalyst took substantial steps to comply, self-reported, and remediated and, therefore, received a no-penalty resolution.”